Heidelberg Cement India Ltd

About the Company

HeidelbergCement India Limited is is a subsidiary of HeidelbergCement Group, Germany. The Company has its operations in Central India at Damoh (Madhya Pradesh), Jhansi (Uttar Pradesh) and in Southern India at Ammasandra (Karnataka).

Q3FY20Updates

Financial Results & Highlights

Consolidated Financials (In Crs)

Q3FY20

Q3FY19

YoY %

Q2FY20

QoQ %

9MFY20

9MFY19

YoY%

Sales

559.8

574

-2.47%

534.6

4.71%

1695.5

1613.3

5.10%

PBT

85.6

90.4

-5.31%

89.9

-4.78%

297.4

246.7

20.55%

PAT

64.6

58.56

10.31%

58.15

11.09%

201.77

159.76

26.30%

Detailed Results

The company had a modest quarter with a 2.5% YoY drop in revenues and a 10% YoY rise in profits.

The 9M period for the company was good with 5% revenue growth YoY and 26% profit growth YoY.

The company also saw a volume decline of 5% YoY. This was mainly due to the big sale of clinker in Q3FY19 while there has been no clinker sale in Q3 and marginal decline in demand in Central and South India.

The company saw good operational efficiencies in the quarter with gross realizations and EBITDA per ton rising 3.5% and 3.6% YoY respectively.

The company is looking to expand capacity in Imlai plant and Jhansi plant by 0.5 and 0.55 million tons respectively. The Capex required for this is expected to be Rs 6.3 Cr and Rs 14.4 Cr respectively.

The company expects the final capacity after expansion to be 6.26 million tons per year.

Investor Conference Call Highlights

The growth of the cement industry has been 3.5% in the last 3 quarters while in Q3, the growth was 5%. The capacity utilization of the industry is 68% which is soft according to the management.

The company remains zero net debt at present.

The current quarter has been the second-highest PAT quarter for the company.

The current consumption % of pet coke is 63% and the company will move to increase it as the prices of pet coke remain subdued.

The customer segment for the premium product is not limited to premium customers and it is mainly bought by customers looking for quality.

The company is not pushing dealers to sell more of its premium product and is mainly reliant on the default literature.

The company is looking to target 20-25% market share for the premium product and it will not be engaging in disruptive activities to increase its market share more than the target levels.

The lead distance is 360-370 km for the company.

The rise in other expenses is mainly due to a rise in inflation-related fixed costs.

The management has acknowledged that there may be some cannibalization of normal products from premium products.

The company has close to 10% market share in Central India.

The management has based its forecasts on the assumption of the central India industry growth of 4%.

The management expects the demand for cement to be primarily driven by the housing industry in the next 2 quarters while the infra sector will take 6 months to mobilize on the govt budget allocations.

The entire clinker for the Ammasandra plant is from Zuari.

The company is not looking to add capacity in clinker production but is instead looking to better leverage existing plants to increase capacity from debottlenecking initiatives.

The company has been granted a VAT incentive for its plant expansion in the state. The amount in this incentive has been reduced significantly for which the company has appealed to the state govt.

The company is 100% PPC in all its plants.

The management states that RMC manufacturing is loss-making for all players and it will step in once the market improves and the policies allow for profitable manufacturing.

For the Ammasandra plant, all of the clinkers is being sourced from Zuari.

The management has stated that the fluctuations in sand prices are purely for natural reasons like monsoons, etc.

Analyst’s View

Heidelberg Cement is one of the leading cement makers in South and Central India. The company has had a good year so far with 2 of its highest ever earning quarters in the past 9 months. The company is running at greater than 90% capacity utilization which showcases the demand for the company’s products. The growth in the premium product mycem has been very encouraging. It remains to be seen whether the tailwinds behind the cement industry growth in the recent past will persist and how will the major customer industry segments of infra and housing fare in the future. Nonetheless, given the company’s consistent performance, its close association with its parent Heidelberg Cement Group and its strategic geographical positioning in India, Heidelberg Cement remains a good cement stock to watch out for.